Wednesday, 2 February 2011

Can be Total Reward considered an additional model of HRM?

Total reward has
been essentially developed to help employers satisfy their most important
needs, to wit: attract, retain, motivate and engage individuals not just by
means of salary increases, bonuses, golden handcuffs or other types of
financial rewards, whose effectiveness in the mid- to long-term is debatable at
best, but in a way that enables organizations to yield long-lasting results.

It can be argued
that the “birth” of total reward is essentially mainly due to the
ineffectiveness of exclusively-extrinsic-based reward systems and approaches.
Despite employers have experienced over the years that cash may prove to be an
effective means to attract talented individuals, these have on the other hand
found out that money on its own cannot effectually help them to retain and
motivate individuals, if anything in the mid to long run. These conclusions are
indeed supported by the findings of several studies and investigations carried
out over the past and recent years as well.

The CIPD (2005) has
indeed identified some additional reasons behind the growing need for and
emergence of total reward approaches:

- The increasing
costs faced by organizations for some types of benefits like pensions;

- The circumstance
that individuals are more motivated by training and development opportunities;

- The diversity
typifying the composition of the employee population of any business, which
makes it particularly difficult to find out what each individual values the
most;

- The inconsistencies related to the message which
essentially the different reward options sometimes get across.

The change of perspective
and its new focus on the meaning of reward intended as a total reward system is
indeed due to the sensible changes and developments occurring in the external and
more specifically commercial environment, with which organizations are
constantly prompted to cope. Markets increasingly put pressure on employers in
order for these to contain their costs whilst maintaining, or rather, improving
their quality standards.

In their quest to
ensure their organizations the skills necessary to attain their intended
objectives, employers are also constantly prompted to cope with the ever-changing
labour market conditions, which make it sorely difficult for them to recruit,
retain and motivate talented individuals without periodically granting them pay
increases. As suggested by Torrington et al. (2008), under such circumstances
employers may either decide to rely on fewer better paid individuals in order
for these to carry out the required work more effectively and efficiently or
capping salaries at large or search for additional more effective solutions to
reward employees. It is indeed the latter option which has finally prevailed
and which has accounted for the majority of employers opting for the “total
reward” approach.

Wilson (2008), highlighting
the transactional aspect of this approach, defines total reward as the set of policies,
programmes and practices providing employees “something of value in return for
their contribution to the mission and goals of the organization.” The Author
seems hence to support the idea that employers have recourse to this means in a
bid to pursue a specific and well-identified goal.

Armstrong (2006), who in his definition of
total reward does not make any reference to its origins, defines it “as a
combination of financial and non-financial rewards available to employees.” He
also cites the definition formulated by Manus and Graham (2003) according to
whom total reward “includes all types of rewards – indirect as well as direct,
and intrinsic as well as extrinsic.”

The sum of these definitions, each emphasising
different but converging aspects of total reward, ultimately offers a remarkable
insight of total reward aim and objectives, that is, provide staff with
something valuable in exchange for their working activity on the one hand and more
specifically and fittingly identify that “something valuable” on the other hand.

The typical
components of total reward (CIPD, 2005), which represent the groupings of levers
employers can actually have recourse to in order to motivate, engage and retain
individuals, are basically four:

- Financial reward,

- Benefits,

- Learning and
development,

- The working
environment.

A number of total reward frameworks and models
have actually been developed on the basis of these components over time. These
are habitually represented by four-quadrant diagrams describing and defining
the transactional: pay and benefits and relational: learning & developments and working
environment components of the model. The framework developed by Armstrong
(2006) also differentiates the individual components of the model (pay –
learning & development) from the communal components (benefits – working
environment) (Figure 1).

Figure 1

Employers
essentially develop and implement reward policies and practices with the final
aim of achieving competitive advantage. Nonetheless, the mere duplication of
easy-to-replicate policies is likely to end in a miserable failure so that
employers need to pay careful attention to the development of their reward
practices, namely when deciding on the intangible components of reward and in particular
when developing the “working environment” component. Whereas managing the tangible
financial components of reward is relatively unproblematic, these components are
also quicker and easier to replicate by competitors. By contrast, the
intangible components of rewards are much harder to design and implement, but
also to replicate.

In order to attain and
maintain competitive edge in the long-term, organizations must strive to
improve their staff perceived worth of the intangible elements of their value
proposition, which is indeed not an easy task to perform, never mind assess its
effectiveness. Moreover, intangible rewards are more likely to be
“intrinsically”, rather than “extrinsically” motivating; albeit managers can
contribute to their attainment, these cannot by definition directly provide
intrinsic reward (Torrington et al, 2008). An example of intrinsic motivation
is represented by an employee putting extra effort into a project simply
because s/he finds it interesting, compelling enjoyable and fulfilling. This
may result on the attainment of an individual perceived considerable
satisfaction, but does not directly result from any management action.

What all managers
can and definitely have to do is invariably trying hard to create and sustain a
culture favouring individual intrinsic motivation and hence instil in employees
the feeling that their work experience is intrinsically rewarding. It is in
fact this component which is most likely to make a positive impact on
individuals, both in engagement and motivation terms, in the short and long run
as well.

Summarising the aims and characteristics of
total reward, it can be contended that it essentially aims at helping organizations
to motivate and engage individuals in order for businesses to achieve
competitive edge. To effectually attain the final aim reward policies and
practices clearly need to be aligned with the overall business strategy and HR
Strategy as well.

Total reward can be
ultimately considered as an additional means to an, or rather, to “the” end,
namely the attainment of an organisation’s intended strategy. As it the case
for HR practices at large, notwithstanding, for the development of total reward
policies the one-size-fits-all approach is utterly unsuitable.

One of the most
distinctive features of total reward is that it is based on the multiplicative
and synergic effect produced by the bundle approach, which is actually at the
basis of all the HRM models developed hitherto. Terms as alignment, motivation,
policies, best/right fit and bundle are actually keywords common both to HRM
and total rewards models.

When designing and
developing total reward programmes as well as when making decisions about the
most suitable HRM practices to be adopted and implemented within their
organisations, business leaders and HR professionals can essentially have
recourse to a number of diverse drivers, which they can and actually
differently use according to the aim they want to attain in practice. During
this process employers should have recourse to all of the components available
to them, albeit not necessarily to all of the elements forming each component.
The most difficult feat HR and reward professionals have to perform,
nonetheless, is deciding and determining how and in which measure have recourse
to each of these components, safe in the knowledge that each of these taken in
isolation will not enable them to yield significant results, if any.

Separately
analysing each of the components typically forming a total reward system it
clearly emerges that a total reward approach is not actually adding that much
to what employers already know and to the levers these habitually use to
attract and retain individuals. HR professionals invariably strive to formulate
and execute HRM policies and practices aiming at attracting, retaining,
motivating and engaging individuals differently emphasising, according to the
type of bundle these consider as the most suitable for their organization, the
role of learning and development, job design, job challenge, flexibility,
internal mobility and reward. In terms of bundling, total reward is clearly
similar to HRM models, which are also defined by a set of activities aiming at
facilitating the execution of business strategies. That is why total reward can
basically be considered as a HRM model on its own.

Analysing, for instance, the People Performance
Model (Purcell et al, 2003) it clearly emerges that it basically relies on a
few pillars, that is, training and development, working environment and reward
in order to induce individual discretionary behaviour and increase performance
standards. The same pillars are essentially also identified analysing other HRM
models like the Harvard Model developed by Beer et al (1984), the Warwick Model
developed by Hendry and Pettigrew (1990) and other models as well.

Differently from
some HRM models and frameworks, nonetheless, albeit total reward, as suggested
by O’Neal (1998), “embraces everything that employees value in the employment
relationship”, it does not provide visible links and details of the causal
interrelations existing between the different components of the models, at
least not in a such systematic way as HRM models in general do.

Armstrong (2006)
claims that the total reward approach is holistic, its success relies on the
use of all of the possible options by means of which individuals can be
rewarded and receive satisfaction from their work. Total reward, however, provides
just the list of the ingredients which HR professionals can use, but not the
recipe explaining how to use and combine the different ingredients together.

The People
Performance model developed in the Bath University by Purcell (2003) and his colleagues,
just to cite an example, in contrast, clearly stresses:

-
The benefit provided by recruitment and selection by ensuring organisations the
abilities and skills these need,

-
The role of pay satisfaction to motivate and incentivise employees,

- The existence of direct linkages between
teamwork, job challenge and involvement to provide employees opportunity to
participate.

The model also
recognizes the linkages existing amongst all of its components and the impact
each component has on the successful unfolding of the overall process and the
achievement of the pre-identified aim.

In conclusion, it can
be averted that, although total reward models can be considered sort of HRM
models in embryo, these cannot be considered as having gained the full HRM
models status in that these lack of an apparent structure in which all of their
components are clearly linked one another in a systematic and logical order and
relation.

Notwithstanding, total reward aims and
objectives are clearly similar to the HRM models aims and objectives so that
appropriately developed total reward frameworks can produce valuable effects
and prove to be even more rewarding tools for organizations themselves.

Longo, R., (2011), Can be Total Reward considered an additional model of HRM?, HR Professionals, [online].